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Step 5: Make an Offer An initial offer is the starting point for negotiations. You want your offer to capture the seller's attention and make them want to work with you (and not with any other buyers with offers on the table, should there be any). There are many, many ways to make your offer as attractive as possible, whether you're low-balling a property languishing on the market, or competing to win a multiple bid situation.
Here are some offer basics:
Know the Contract
I cannot stress enough how important it is to understand the basics of the contract before the point of submitting an offer. You do not want to find yourself making hasty decisions where contracts are concerned! Make the time to review the contract provisions with me ahead of time and I promise you'll never regret it.
Case-in-Point: Do you know what your options are if the property suffers fire damage AFTER the contract is in force but BEFORE closing? (see answer below)
Hire your lawyer!
Realtors only have the right to fill in the blanks of a contract. Unless we are also licensed lawyers, the law does not allow us to add provisions, contingencies, etc. to the contracts we use because that is considered a practice of law. We also cannot counsel you on wording.
However, you, as a principal to the transaction, DO have the right to add (in your own words) anything you'd like to the contract. You also have the right to have your lawyer make or approve these changes. If you think your situation requires any contractural additions, it would be a very smart move to secure your real estate attorney PRIOR to submitting the offer!
For example, if you want to make your purchase contingent on getting permission from the city to add a garage, you have the right to make that part of your offer, either in your own words or your attorney's.
Know the Options
Every transaction is unique, so the contracts we use have to cover a wide variety of situations. We will discuss ahead of time my understanding of the seller's situation so that we write, as much as possible, directly to their needs or wants. Some of the typical areas we try to tailor include: price (of course), closing date, and any post-closing possession (where the seller "rents" the property for some period of time after the closing) agreements. Opting in the "As-Is" clause is another important consideration--but it's not for everyone and not recommended in all situations.
Personal Property
Real estate contracts allow for certain personal property to be transferred with the real estate unless specifically excluded. Typically, this includes attached personal property, such as heating systems, intercom systems, appliances, chandeliers and the like. However, there are some items that may appear to be part of the real estate, but are actually personal property and must be accounted for specifically in the offer. A good example of this is an outdoor playset.
Be Attractive
When reviewing an offer, the first thing a seller (or their agent)usually sees is the earnest money check. Consider a bigger up-front earnest deposit than our regional custom of $1000. This is especially useful in multiple bid and low-ball situations: it indicates that you are serious. Then agree to increase your initial earnest money to a strong figure (usually 5% of selling price) so the seller can be comfortable that you won't walk away from the deal. Always opt for the interest-bearing account for your earnest money, and make sure you will not be responsible for any account fees.
Indicating flexibility on contract terms can be very attractive, so consider using terms such as "or by mutual agreement" to indicate to the sellers that a given point is negotiable (such as a closing date).
Clearly, the closer your offer price is to the asking price, the better your chances of success. However, your goal is to secure the property for the lowest possible price, and I will use all my experience to counsel you on a starting price (and likely ending price) based on all the relevant factors.
The Parts of an Offer
REQUIRED:
1. The correctly completed, signed purchase contract is the heart of the offer (which becomes a binding contract only when the seller has signed and, with my contract, delivered it)
2. The earnest money check (your indication of seriousness)
OPTIONAL:
3. Acceptance Addendum (a built-in expiration of the offer)
4. A letter of introduction (hand-written, if possible, by the buyers)
5. Completed W9 (so any interest earned on earnest deposits can be reported to the IRS)
Writing the Offer
With our strategy determined, we will review the contract again briefly and fill in the blanks with the proper information. If we've reviewed everything ahead of time, I'd expect the writing process to last about 1/2 hour. If not, then please expect to spend about an hour extra going over the points of the contract.
If possible, I will contact your loan officer prior to, or during, this time. I want to be sure that we are contracting into reasonable mortgage terms given current mortgage industry conditions and rates. I will also request, if possible, that your officer forward to me immediately a pre-approval letter specifically referring to this property. During this coversation, I will notify your loan officer how to reach me during the negotiations, should the listing agent decide to follow up on the pre-approval with some questions.
Once the offer is complete, you will initial each page of the offer and sign on the final page. We will determine the expiration date and time of the offer, and complete and sign the Acceptance Addendum (if any). You will then cut a check for the initial earnest money, made out to the listing broker, who holds earnest money until closing (or contract cancellation), and complete the IRS W-9 form for reporting interest earned on your earnest money.
Next, I will explain to you the benefit of writing an introductory letter to the sellers. I have found sellers react very positively when buyers explain in their own words the thoughts and emotions that lead them to make their offer. There's something about the sincerity and excitement that speaks to the sellers' own love of their home, and provides them with the security of knowing that they are handing over their prized possession to people who are going to love it as much as they do. It's a great way to capture their attention and make your offer stand out from any others!
I will then make a copy of the package for you, and I will explain my strategy for presenting the offer and we will make plans to speak after my presentation so I can share with you the listing agent's reaction.
Then, the negotiations begin!
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